Inside two years, the car-sharing venture Car2Go surged from the brink of bankruptcy to the black, with the help of local governments. In the years to come, Car2Go, which is a private company owned by the Shagrir road-services group (and unrelated to the international one) stands to gain millions of shekels as practically the only vendor supplying car-sharing service in Israel’s cities, promoted by the municipalities themselves.
The merit of car-sharing around the world is still debatable. Here, Car2Go’s story began in 2005, launched by Yonatan Gadish, Noam Margalit and Ben Ninio as a classic car-sharing company. Users would book a car in advance, pick it up and return it to the same place, and pay by the hour (the more time they drive, the cheaper the hourly rate).
To begin with, Car2Go bought cars, placed them in parking places they leased from residents and cities, and started hawking the service.
The reaction was muted. Subscribers were fewer than expected, the cost of leasing parking places climbed and revenues didn’t cover expenses. It needed infusion.
The founders sold shares in the company. The first buyer was Pointer, which develops systems to locate stolen cars, and in 2009, so did car-towing company Shagrir (formerly a partner in Pointer), which invested in a few stages. According to the latest annual report published in March 2017, Shagrir owns 72% of Car2Go (not related to the international company).
But the car sharing business didn’t take off in Israel and losses mounted. In early 2015, Car2Go replaced management, naming Gil Laser as chief executive. He tried to tap central government, suggesting that the company provide cutting-edge car-sharing in exchange for public funding. The Transport Ministry would have none of it, saying that car sharing competed with public transport, and had zero advantage over family cars. So Laser tried with local government, starting with rich Tel Aviv. A tender was indeed issued, which Car2Go people helped prepare and which Car2Go won, and from 2017, it’s been offering car sharing through what’s called the AutoTel venture.
It’s a 10-year deal that will bring the company millions of shekels over the 10 years. Pursuant to their agreement, city hall bought 260 cars costing 14 million shekels (about $4.1 million), vowed to replace the fleet three times in 10 years, and paid for the physical infrastructure: repainting 520 parking places around the city to earmark them for Car2Go vehicles (if you park a regular car in one, you get fined). Cars needed repainting and branding and accessorization for the technology. It also paid for the technology in the cars, and 9 million shekels to develop software and an app. The software and app remain owned by Car2Go, which is allowed to use them for other customers – other municipalities.
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The Tel Aviv municipality explained its funding by saying, “Tel Aviv was the company’s first customer and obviously it bore the burden of development that won’t be borne by future customers.”
The city does get royalties from income the software produces, if any – but only 4%, and up to a ceiling of 5 million shekels, if they arrive within 10 years. The city – meaning the public – only returns its investment if the software generates income of 100 million shekels over 10 years.
The city is also financing AutoTel’s operations, giving Car2Go money each month based on a formula factoring in the number of subscribers, cars and usage. Tel Aviv agreed to invest up to 100 million shekels in AutoTel over the decade
By year-end it will invested 52 million shekels in AutoTel, from which Car2Go gets millions for operating the venture.
The city’s payments are in four parts. One That includes salaries, public relations and rent, for instance. Since launching, Car2Go has been getting a bit over 650,000 shekels a month for that.
The second is fleet operation: 0.63 shekels per kilometer of travel by the cars for any reason, whether by a subscriber or an employee taking it to be cleaned and gassed.
Third is 1,823 shekels per car a month for maintenance, which comes to 450,000 shekels a month; fourth is 30,000 shekels a month for “new subscribers”, no matter how many join.
At least six cities have signed up with Car2Go and the company says it’s expanding the sharing to a host of other areas, including Rehovot, Kiryat Bialik, Rishon Letzion, the Dead Sea and Jordan Valley.
It’s also looking at bicycle-sharing. Its bikes are dock-less, which means its investment is lower but the cities face higher operating costs: The bikes get scattered everywhere, they have to be found where they were left (unattended), picked up and moved to areas where they might be in demand, and move them if somebody complains about nuisance.
The amounts of money and parking capacity that Car2Go vary among the cities. It provides two basic models: A2A (for long distances), which is useful in areas poorly served by public transport; and A2B, for intracity travel. Payment is by the minute and the car need only be booked a quarter-hour in advance, and be left in any of the designated parking spaces, which spares them hunting for parking. An expansion of that model is A2Z, where Cargo cars can be left in any legal parking space, which is the model used in Tel Aviv.
Lawsuit in Haifa
Car2Go’s second venture was in Haifa, starting in October 2017. It was spared the public tender process, which spurred a pending lawsuit by a nonprofit, demanding the city issue a public tender. Haifa claimed Car2Go was the only game in town but the Shlomo Sixt car-rental company recently advised the city that it could be a contender too.
In Haifa Car2Go is using electric cars and the A2B model. Users have to park in designated spots, which have electric chargers. There are 100 cars and 300 parking spaces around the city. This is after Laser met with environment Ministry people two years ago and they indeed supported government funding, of 12 million shekels, on the grounds that electric cars wouldn’t add to emissions. It isn’t clear what contribution the 100 cars will have on the pollution emitted by hundreds of thousands of cars, but it suits the government’s green agenda.
The Environmental Ministry says the Haifa project is a pilot. Amir Salzberg, head of the ministry’s transportation division, says its support is conditional on user surveys to be conducted every six months. The project would be deemed a success if it reduces car travel in the city and ownership of vehicles, but admits that the ministry didn’t actually define what reduction would be considered a success. He also admits that the surveys, designed as questionnaires, may be unreliable.
Car2Go also has an agreement with the Haifa Bay Municipal Association, whose header, Ofer Dresler, says the Krayot will be joining. Together they’re investing 5 million shekels for charging infrastructure, plus over three years, Car2go will be getting 220,000 shekels a month from Haifa Bay Municipal Association (totaling 8 million shekels). Dresler says Car2Go was the only bidder for the contract and the funding is to support the company until it can achieve subsistence. In electric cars, it bears noting that the gas bill is zero, mechanical wear is lesser but infrastructure – paid for by the municipalities - and power are pricey.
Four months in, Haifa has only 1,500 subscribers, each using a car three or four times a month.
We asked the Tel Aviv municipality, Haifa Bay Municipal Association and the Environment Ministry for hard data on usage. They referred us to Car2Go, which referred us to the parent company Shagrir, which explained that as it’s publicly traded, it can’t provide data until its financial statement is published at the end of March.
Paris was the pioneer of car-sharing, in 2011, and seven years later, it looks like an expensive mistake. Enthusiasm waned. From a peak of 140,000 subscribers it had sunk to 103,000 in September 2017. But the number may mislead, as the subscriptions are renewed automatically. The Paris venture, which also uses electric cars, is in the red and as subsidies continued, it came to be dubbed by some the “socialist flop.”
The Parisian example didn’t deter Netanya from entering a similar project with Car2Go: In September it will be launching 70 electric cars with 210 designated parking spaces, giving the company 1.2 million shekels over three years and investing 3.5 million in infrastructure. The money will be coming from the Environment Ministry, the Jewish National Fund and the Alternative Fuels administrative at the prime minister’s office.
Ashdod won’t be putting money into the company unless the Environment Ministry gets involved, but it gave the company 50 parking spaces and Jerusalem gave it 34 – and there, Car2Go divided the contract into regular service and “kosher”, if cars that won’t be driven on Shabbat.
Shagrir’s financial statements show its car sharing operations, and show growing income, originating in AutoTel profits. Shagrir makes more from car-sharing than from its traditional business, car services for insurance companies.
In 2015 Car2Go had operating losses of 102,000 shekels. Car2Go’s agreement with Tel Aviv was made in June 2016 and that year, it achieved operating profit of almost 3 million. In the first nine months of 2017, Car2Go increased revenues by 87% and operating profit by 370% against the same period of 2016, to 25 million shekels, mainly originating from AutoTel
So in less than two years, Car2Go went from deficit to profit, with software developed by the city of Tel Aviv, supported by several cities, and is strengthening its status as sole supplier of car-sharing.
Car2Go commented that the lawsuit in Haifa is baseless and noted that a ruling on December 4, 2017 rejected the petition for a temporary order and slapped costs on the plaintiff. The court also said the lawsuit’s chances were low. “It is odd that the Shlomo group didn’t bid for the contract,” Car2Go added, nor did Shlomo bite when Rishon Letzion solicited car-sharing vendors half a year ago.
“Studies conducted around the world” show that shared cars are expected to replace between four to 14 regular cars, Car2Go says, adding that it’s serving as a way to introduce electric cars to Israelis.
Laser, the company says, was invited to the Environment Ministry pursuant to its green aspirations, and there he presented the advantages of car-sharing. In 2016 the ministry called on municipalities to adopt electric car-sharing.
The Tel Aviv municipality stated that Car2Go is a ground-breaking, innovative venture whose results have to be tested over time, not after four months. You can’t measure if people are buying less cars and if pollution is dropping in that time, the city pointed out.